Germany is about to lose its triple A credit rating. Oh, and an asteroid will
hit Earth next week, too.
Only a handful of countries, such as Norway and Switzerland, could be
considered safer than Europe’s biggest economy. Yet traders on Thursday
afternoon took seriously a rumour of a German sovereign downgrade.
A mere 15 minutes after the whispers started to flow, the Dax German stock
market index had fallen 4 per cent and the euro had lost about 1 per cent
against the dollar.
Ridiculous
The rumour was clearly ridiculous. Not only is there no reason for a downgrade
– the Germans, unlike the Americans and the Japanese, are actually
determined to maintain a high fiscal standard – but the rating agencies do
not move suddenly when the stability of global financial markets is at
stake.
Standard & Poor’s started to prepare the markets for a US downgrade months
before it took action. It also gave the US government a chance to mend its
wayward fiscal ways, and a courtesy preview of the downgrade.
Of course, false rumours constantly fly around the markets. Still, regulators
should investigate this one. If the source was mere water-cooler musings
from work-experience interns, then nothing worse than warnings about loose
talk are in order. But if, say, a hedge fund short German stocks was behind
the story, this could well be a case of criminal market manipulation.
Lesson
Or maybe not. There is also a good argument that any investors stupid enough
to believe such a ludicrous story deserve to lose their money. Financial
regulators are supposed to protect innocent investors both from malfeasance
and their own gullibility, but there is only so much they can be expected to
do.
Investors can learn a lesson from the sorry episode. Whether the whole tale is
considered illogical, illegal or just ludicrous, it shows that - for now at
least - markets are still ruled by fear.
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